Adjustments to basis

taxes or other carrying charges described in section 266; or expenditures described in section 173 (relating to circulation expenditures), for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer’s taxes under this subtitle (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws, before March 1, 1913, since February 28, 1913, during which such property was held by a person or an organization not subject to income taxation under this chapter or prior income tax laws, since February 28, 1913, and before January 1, 1958, during which such property was held by a person subject to tax under part I of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, and since February 28, 1913, during which such property was held by a person subject to tax under part II of subchapter L as in effect prior to its repeal by the Tax Reform Act of 1986 (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, in the case of stock (to the extent not provided for in the foregoing paragraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including distributions made by a corporation which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 (40 Stat. 1057), or the Revenue Act of 1921 (42 Stat. 227), out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 or 1921); in the case of any bond (as defined in section 171(d)) the interest on which is wholly exempt from the tax imposed by this subtitle, to the extent of the amortizable bond premium disallowable as a deduction pursuant to section 171(a)(2), and in the case of any other bond (as defined in section 171(d)) to the extent of the deductions allowable pursuant to section 171(a)(1) (or the amount applied to reduce interest payments under section 171(e)(2)) with respect thereto; in the case of any municipal bond (as defined in section 75(b)), to the extent provided in section 75(a)(2); in the case of a residence the acquisition of which resulted, under section 1034 (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), in the nonrecognition of any part of the gain realized on the sale, exchange, or involuntary conversion of another residence, to the extent provided in section 1034(e) (as so in effect); in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 77, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability; for amounts allowed as deductions as deferred expenses under section 616(b) (relating to certain expenditures in the development of mines) and resulting in a reduction of the taxpayer’s taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years; Repealed. Pub. L. 94–455, title XIX, § 1901(b)(21)(G), Oct. 4, 1976, 90 Stat. 1798] for deductions to the extent disallowed under section 268 (relating to sale of land with unharvested crops), notwithstanding the provisions of any other paragraph of this subsection; Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(75), Dec. 19, 2014, 128 Stat. 4049] Repealed. Pub. L. 108–357, title IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1509] for amounts allowed as deductions under section 174 or 174A(c) and resulting in a reduction of the taxpayers’ taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years; for deductions to the extent disallowed under section 272 (relating to disposal of coal or domestic iron ore), notwithstanding the provisions of any other paragraph of this subsection; in the case of any evidence of indebtedness referred to in section 811(b) (relating to amortization of premium and accrual of discount in the case of life insurance companies), to the extent of the adjustments required under section 811(b) (or the corresponding provisions of prior income tax laws) for the taxable year and all prior taxable years; to the extent provided in section 1367 in the case of stock of, and indebtedness owed to, shareholders of an S corporation; to the extent provided in section 961 in the case of stock in controlled foreign corporations (or foreign corporations which were controlled foreign corporations) and of property by reason of which a person is considered as owning such stock; to the extent provided in section 50(c), in the case of expenditures with respect to which a credit has been allowed under section 38; for amounts allowed as deductions under section 59(e) (relating to optional 10-year writeoff of certain tax preferences); to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends); in the case of qualified replacement property the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale or exchange of any property, to the extent provided in section 1042(d),11 So in original. The comma probably should be a semicolon. in the case of property the acquisition of which resulted under section 1043, 1045, or 1397B in the nonrecognition of any part of the gain realized on the sale of other property, to the extent provided in section 1043(c), 1045(b)(3), or 1397B(b)(4), as the case may be,1 Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(G), Dec. 19, 2014, 128 Stat. 4042] Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(2)(D), Dec. 19, 2014, 128 Stat. 4037] to the extent provided in sections 23(g) and 137(e),1 Repealed. Pub. L. 115–141, div. U, title IV, § 401(d)(4)(B)(iv), Mar. 23, 2018, 132 Stat. 1209] in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F(f)(1),1 in the case of railroad track with respect to which a credit was allowed under section 45G, to the extent provided in section 45G(e)(3),1 to the extent provided in section 179B(c),1 to the extent provided in section 179D(e),1 to the extent provided in section 45L(e), in the case of amounts with respect to which a credit has been allowed under section 45L,1 to the extent provided in section 25C(g), in the case of amounts with respect to which a credit has been allowed under section 25C,1 to the extent provided in section 25D(f), in the case of amounts with respect to which a credit has been allowed under section 25D,1 to the extent provided in section 30B(h)(4),1 to the extent provided in section 30C(e)(1),1 to the extent provided in section 30D(f)(1),1 and to the extent provided in subsections (b)(2) and (c) of section 1400Z–2. Whenever it appears that the basis of property in the hands of the taxpayer is a substituted basis, then the adjustments provided in subsection (a) shall be made after first making in respect of such substituted basis proper adjustments of a similar nature in respect of the period during which the property was held by the transferor, donor, or grantor, or during which the other property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases. the fair market value of such interest on the date of the decedent’s death (or the alternate valuation date under section 2032, if the executor of the decedent’s estate elected the application of such section), over the value of such interest determined under section 2032A(a). which bears the same ratio to the increase which would be determined under paragraph (1) (without regard to this paragraph) with respect to the entire interest, as the amount of the tax imposed under section 2032A(c)(1) with respect to such disposition bears to the adjusted tax difference attributable to the entire interest (as determined under section 2032A(c)(2)(B)). For purposes of subparagraph (A), the term “partial disposition” means any disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or (i)(1)(B) of section 2032A applies. Any increase in basis under this subsection shall be deemed to have occurred immediately before the disposition or cessation resulting in the imposition of the tax under section 2032A(c)(1). If the tax under section 2032A(c)(1) is imposed with respect to qualified replacement property (as defined in section 2032A(h)(3)(B)) or qualified exchange property (as defined in section 2032A(i)(3)), the increase in basis under paragraph (1) shall be made by reference to the property involuntarily converted or exchanged (as the case may be). An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable. If an election is made under this subsection with respect to any additional estate tax imposed under section 2032A(c)(1), for purposes of section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601). the taxpayer acquires any automobile with respect to which a tax was imposed by section 4064, and the use of such automobile by the taxpayer begins not more than 1 year after the date of the first sale for ultimate use of such automobile, For treatment of separate mineral interests as one property, see section 614. This section may be cited as the ‘Retirement-Straight Line Adjustment Act of 1958’. Any taxpayer who held retirement-straight line property on his 1956 adjustment date may elect to have this section apply. Such an election shall be made at such time and in such manner as the Secretary shall prescribe. Any election under this section shall be irrevocable and shall apply to all retirement-straight line property as hereinafter provided in this section (including such property for periods when held by predecessors of the taxpayer). For purposes of this section, the term ‘retirement-straight line property’ means any property of a kind or class with respect to which the taxpayer or a predecessor (under the terms and conditions prescribed for him by the Commissioner) for any taxable year beginning after December 31, 1940, and before January 1, 1956, changed from the retirement to the straight line method of computing the allowance of deductions for depreciation. Was retired by the taxpayer or a predecessor before the changeover date, but only if (i) a deduction was allowed in computing net income by reason of such retirement, and (ii) such deduction was computed on the basis of cost without adjustment for depreciation sustained before March 1, 1913. In the case of any such property retired during any taxable year beginning after December 31, 1929, the adjustment under this subparagraph shall not exceed that portion of the amount attributable to depreciation sustained before March 1, 1913, which resulted (by reason of the deduction so allowed) in a reduction in taxes under the Internal Revenue Code of 1986 or prior income, war-profits, or excess-profits tax laws. Was held by the taxpayer or a predecessor on the changeover date. This subparagraph shall not apply to property to which paragraph (2) applies. sold, or with respect to which a deduction was allowed for Federal income tax purposes by reason of casualty or ‘abnormal’ retirement in the nature of special obsolescence, For depreciation allowable, under the terms and conditions prescribed by the Commissioner in connection with the changeover, for all periods on and after the changeover date and before the taxpayer’s 1956 adjustment date. For the amount of the reserve prescribed by the Commissioner in connection with the changeover. For the depreciation allowable under the terms and conditions prescribed by the Commissioner in connection with the changeover. In determining equity invested capital under sections 458 and 718 of the Internal Revenue Code of 1939, accumulated earnings and profits as of the changeover date, and as of the beginning of each taxable year thereafter, shall be reduced by the depreciation sustained before March 1, 1913, as computed under subsection (d)(1)(B); and In determining the adjusted basis of assets for the purpose of section 437(c) of the Internal Revenue Code of 1939 (and in addition to any other adjustments required by such Code), the basis shall be reduced by depreciation sustained before March 1, 1913 (as computed under subsection (d)), together with any depreciation allowable under subsection (e)(2) for any period before the year for which the excess profits credit is being computed. The term ‘depreciation’ means exhaustion, wear and tear, and obsolescence. The term ‘changeover’ means a change from the retirement to the straight line method of computing the allowance of deductions for depreciation. The term ‘changeover date’ means the first day of the first taxable year for which the changeover was effective. The term ‘1956 adjustment date’ means, in the case of any taxpayer, the first day of his first taxable year beginning after December 31, 1955. The term ‘predecessor’ means any person from whom property of a kind or class to which this section refers was acquired, if the basis of such property is determined by reference to its basis in the hands of such person. Where a series of transfers of property has occurred and where in each instance the basis of the property was determined by reference to its basis in the hands of the prior holder, the term includes each such prior holder. The term ‘Secretary’ means the Secretary of the Treasury or his delegate. The term ‘Commissioner’ means the Commissioner of Internal Revenue.” Proper adjustment in respect of the property shall in all cases be made— for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made— for— in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount— in respect of any period— If an additional estate tax is imposed under section 2032A(c)(1) with respect to any interest in property and the qualified heir makes an election under this subsection with respect to the imposition of such tax, the adjusted basis of such interest shall be increased by an amount equal to the excess of— In the case of any partial disposition for which an election under this subsection is made, the increase in basis under paragraph (1) shall be an amount— If— If the taxpayer has made an election under this section, then in determining the adjusted basis on his 1956 adjustment date of all retirement-straight line property held by the taxpayer, in lieu of the adjustments for depreciation provided in section 1016(a)(2) and (3) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], the following adjustments shall be made (effective as of his 1956 adjustment date) in respect of all periods before the 1956 adjustment date: For depreciation sustained before March 1, 1913, on retirement-straight line property held by the taxpayer or a predecessor on such date for which cost was or is claimed as basis and which either— For that portion of the reserve prescribed by the Commissioner in connection with the changeover which was applicable to property— If the taxpayer has made an election under this section, then in determining the adjusted basis of any retirement-straight line property as of any time on or after the changeover date and before the taxpayer’s 1956 adjustment date, in lieu of the adjustments for depreciation provided in section 1016(a)(2) and (3) of the Internal Revenue Code of 1986 and the corresponding provisions of prior revenue laws, the following adjustments shall be made: If an election is made under this section, then (not withstanding the terms and conditions prescribed by the Commissioner in connection with the changeover)— For purposes of this section— (Source: (Aug. 16, 1954, ch. 736, 68A Stat. 299; June 29, 1956, ch. 464, § 4(c), 70 Stat. 407; Pub. L. 85–866, title I, §§ 2(b), 64(d)(2), Sept. 2, 1958, 72 Stat. 1607, 1656; Pub. L. 86–69, § 3(d), June 25, 1959, 73 Stat. 139; Pub. L. 87–834, §§ 2(f), 8(g)(2), 12(b)(4), Oct. 16, 1962, 76 Stat. 972, 998, 1031; Pub. L. 88–272, title II, §§ 203(a)(3)(C), 225(j)(2), 227(b)(5), Feb. 26, 1964, 78 Stat. 34, 93, 98; Pub. L. 91–172, title II, § 231(c)(3), title V, §§ 504(c)(4), 516(c)(2)(B), Dec. 30, 1969, 83 Stat. 580, 633, 648; Pub. L. 94–455, title XIX, § 1901(a)(123), (b)(1)(F)(ii), (21)(G), (29)(A), (30)(A), title XX, § 2005(a)(3), Oct. 4, 1976, 90 Stat. 1784, 1790, 1798, 1799, 1876; Pub. L. 95–472, § 4(b), Oct. 17, 1978, 92 Stat. 1335; Pub. L. 95–600, title V, § 515(2), title VI, § 601(b)(3), title VII, § 702(r)(3), Nov. 6, 1978, 92 Stat. 2884, 2896, 2938; Pub. L. 95–618, title I, § 101(b)(3), title II, § 201(b), Nov. 9, 1978, 92 Stat. 3179, 3183; Pub. L. 96–222, title I, §§ 106(a)(2), (3), 107(a)(2)(C), Apr. 1, 1980, 94 Stat. 221, 222; Pub. L. 96–223, title IV, § 401(a), (c)(1), Apr. 2, 1980, 94 Stat. 299, 300; Pub. L. 97–34, title II, § 212(d)(2)(G), title IV, § 421(g), Aug. 13, 1981, 95 Stat. 239, 310; Pub. L. 97–248, title II, §§ 201(c)(2), 205(a)(5)(B), Sept. 3, 1982, 96 Stat. 418, 429; Pub. L. 97–354, § 5(a)(33), Oct. 19, 1982, 96 Stat. 1695; Pub. L. 98–369, div. A, title I, §§ 43(a)(2), 53(d)(3), title II, § 211(b)(14), title IV, § 474(r)(23), title V, § 541(b)(2), July 18, 1984, 98 Stat. 558, 568, 756, 844, 890; Pub. L. 99–514, title II, § 241(b)(2), title VII, § 701(e)(4)(D), title XIII, § 1303(b)(3), title XVIII, § 1899A(25), Oct. 22, 1986, 100 Stat. 2181, 2343, 2658, 2959; Pub. L. 100–647, title I, §§ 1006(j)(1)(B), 1018(u)(22), Nov. 10, 1988, 102 Stat. 3411, 3591; Pub. L. 101–194, title V, § 502(b)(2), Nov. 30, 1989, 103 Stat. 1755; Pub. L. 101–508, title XI, §§ 11801(c)(1), 11812(b)(10), 11813(b)(19), Nov. 5, 1990, 104 Stat. 1388–522, 1388–535, 1388–555; Pub. L. 102–486, title XIX, § 1913(a)(3)(A), (b)(2)(B), Oct. 24, 1992, 106 Stat. 3019, 3020; Pub. L. 103–66, title XIII, §§ 13114(b), 13213(a)(2)(F), 13261(f)(3), Aug. 10, 1993, 107 Stat. 431, 474, 539; Pub. L. 104–188, title I, §§ 1704(t)(56), 1807(c)(5), Aug. 20, 1996, 110 Stat. 1890, 1902; Pub. L. 105–34, title III, §§ 312(d)(6), 313(b)(1), title VII, § 701(b)(2), Aug. 5, 1997, 111 Stat. 840, 842, 869; Pub. L. 106–554, § 1(a)(7) [title I, § 116(b)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A–603; Pub. L. 107–16, title II, § 205(b)(3), June 7, 2001, 115 Stat. 53; Pub. L. 108–357, title II, § 245(c)(2), title III, §§ 338(b)(4), 339(d), title IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1448, 1481, 1484, 1509; Pub. L. 109–58, title XIII, §§ 1331(b)(1), 1332(c), 1333(b)(1), 1335(b)(4), 1341(b)(2), 1342(b)(2), Aug. 8, 2005, 119 Stat. 1023, 1026, 1029, 1036, 1049, 1051; Pub. L. 109–135, title IV, § 412(nn), Dec. 21, 2005, 119 Stat. 2639; Pub. L. 110–172, §§ 7(a)(1)(C), 11(a)(21), (22), Dec. 29, 2007, 121 Stat. 2481, 2486; Pub. L. 110–343, div. B, title II, § 205(d)(2), Oct. 3, 2008, 122 Stat. 3839; Pub. L. 111–5, div. B, title I, §§ 1141(b)(3), 1142(b)(6), Feb. 17, 2009, 123 Stat. 328, 331; Pub. L. 111–148, title X, § 10909(b)(2)(L), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, § 101(b)(1), Dec. 17, 2010, 124 Stat. 3298; Pub. L. 113–295, div. A, title II, §§ 209(j)(2), 221(a)(2)(D), (34)(G), (75), Dec. 19, 2014, 128 Stat. 4030, 4037, 4042, 4049; Pub. L. 115–97, title I, §§ 13313(b), 13521(a), 13823(b), Dec. 22, 2017, 131 Stat. 2133, 2151, 2188; Pub. L. 115–141, div. U, title IV, § 401(a)(166), (d)(4)(B)(iv), Mar. 23, 2018, 132 Stat. 1192, 1209; Pub. L. 117–169, title I, § 13301(f)(3)(B), Aug. 16, 2022, 136 Stat. 1945; Pub. L. 119–21, title VII, § 70302(b)(10), July 4, 2025, 139 Stat. 192.))